NEW DELHI/MUMBAI (Reuters) - Officials of India's drug regulator have been colluding with pharmaceutical firms to speed up approval procedures, allowing some drugs that are not permitted in other countries to go on sale, according to an 18-month investigation by lawmakers.

The parliamentary panel's 78-page report names a number of major international drug companies and Indian firms.

The report may fuel concerns over lax supervision of the global industry in emerging markets, where Western drug manufacturers are increasingly focusing their sales effort.

The report talks generally of collusion between officials in the Central Drugs Standard Control Organisation (CDSCO), independent medical experts and pharmaceutical companies but does not directly accuse the firms of wrongdoing or name any of the CDSCO officials.

Instead, the panel catalogued a series of procedural failures that it said raised questions about how some of the drugs, including those made by pharmaceutical giants, were allowed to be sold in India.

Thirteen drugs scrutinized by the panel are not allowed to be sold in the United States, Canada, Britain, European Union and Australia, it said.

The Indian pharmaceutical market is the fourth largest in the world in terms of volume, according to the Organisation of Pharmaceutical Producers of India (OPPI). It generates $12 billion in sales every year.

International drug companies whose profits are being squeezed by patent expiries in the developed world are investing heavily in emerging markets, which are expected to account for 29 percent of global pharmaceuticals sales by 2015, up from just 12 percent in 2005, according to IMS Health.

The dash into new markets has brought with it greater scrutiny from U.S. regulators, which are investigating a number of drug companies under the Foreign Corrupt Practices Act.

The Indian government has come under intense pressure over the past two years over its failure to stem graft that has undermined investor confidence.

COLLUSIVE NEXUS

The report by the health committee of the upper house of India's parliament painted a chaotic picture of the CDSCO, which oversees the licensing, marketing and trials of drugs in India.

There is sufficient evidence on record to conclude that there is collusive nexus between drug manufacturers, some functionaries of CDSCO and some medical experts, it said.

The report underlines the difficult relations between international drug companies and India, a country with a long history of making cheap off-patent medicines. Western firms were alarmed by New Delhi's decision in March to effectively end Bayer's monopoly on cancer drug Nexavar by issuing the country's first-ever compulsory license.

The panel recommended the government re-examine certain drugs that had been approved, investigate the gross violation of Indian laws it had uncovered, and take action against officials alleged to have colluded with the drug companies.

What we have found is very alarming, Brajesh Pathak, chairman of the Standing Committee on Health and Family Welfare told Reuters. The Health Ministry should investigate the matter and take urgent action on the report.

The Health Ministry said it was studying the report and would take appropriate action if required.

The newly appointed Drug Controller General of India, G.N. Singh, who is head of the CDSCO, said he had not seen the report but that his team was dedicated to making sure there are no violations.

The OPPI, the main lobby group for foreign drug-makers, said some of the committee's observations raised serious concerns.

We sincerely hope that necessary remedial measures will be taken by the concerned authorities to set the system right, sooner, said Tapan J. Ray, OPPI's director general.

So far as clinical trials are concerned, OPPI members remain committed to sponsoring clinical trials that fully comply with all legal and regulatory requirements in India, he said.

A spokesman for Danish drugmaker Lundbeck, whose anti-anxiety drug Deanxit the report described as unlawfully approved, said the medicine had been approved after undergoing mandatory clinical trials in India.

OPINIONS WRITTEN BY INVISIBLE HANDS

The parliamentary report found numerous shortcomings in the CDSCO.

The regulatory body suffered chronic staff shortages and was overwhelmed by its responsibilities in a country where more than 10,500 drug manufacturers were operating and the pharmaceutical industry was growing at a rate of about 10 percent a year.

The report also said the body had for decades neglected the poor and hapless patient in favor of the drugs industry.

The regulatory procedures are not at all stringent in India and there is a general apathy towards human life. We are sitting on a time bomb and it will soon explode if corrective measures are not taken, said Siddhant Khandekar, a healthcare analyst at ICICI Direct in Mumbai.

The parliamentary committee reviewed 39 randomly selected drugs approved by the CDSCO and found that in the case of 11, mandatory Phase III trials - the final stage of testing before a drug is approved - had not been conducted as required.

The basic purpose of Phase III trials is to determine if there are any ethnic differences that can alter the metabolism, efficacy and safety of the drug when administered to patients of different ethnicities living in India, the report said.

These included Novartis' everolimus and aliskiren, and Eli Lilly's pemetrexed. In the cases of everolimus and pemetrexed, the opinion of independent experts was not sought by the CDSCO, which relied on the judgment of non-medical staff, it said.

Eli Lilly said pemetrexed's approval for lung cancer in multiple markets was based on trials with thousands of patients from diverse ethnic backgrounds - including patients from India.

Lilly followed all appropriate regulatory processes required by the regulatory agency in India, the company said.

There was no immediate comment from Novartis.

The Health Ministry told the panel that the head of the CDSCO had the power to approve drugs without clinical trials in the public interest, but the lawmakers were skeptical, saying that the waivers saved the companies the costs of the trials.

How can approvals given to foreign drugs without testing on Indians be in public interest? the committee said.

It found that the files of three drugs it wanted to scrutinize had mysteriously disappeared and that the recommendations of independent medical experts promoting certain drugs were similarly worded, to the point of including the same misspellings.

Three opinions from experts on rivaroxaban, a drug for prevention of blood clotting made by Bayer, were copies of each other. Bayer said it had no immediate comment.

The report said in another instance, letters from medical experts recommended approval of the drug Pirfenidone, marketed by Indian pharmaceutical company Cipla, which has the second-largest share of the country's domestic drug market. Despite being dated weeks apart, they were all received by the regulator on the same day.

No company breaks the law, Cipla chairman, Y.K. Hamied, told Reuters, without elaborating.

There is adequate documentary evidence to come to the conclusion that many opinions were actually written by invisible hands of drug manufacturers and experts merely obliged by putting their signatures, the parliamentary report said.

(Additional reporting by Annie Banerji in New Delhi, Kaustubh Kulkarni in Mumbai and Ben Hirschler in London; Editing by Jeremy Laurence and Elaine Hardcastle)